You Either Believe In Competition, or You Don’t

One of the chief arguments against Obamacare is that the various plans are all-inclusive and, as a result, include coverage for conditions many subscribers won’t ever need. It could be Viagra for women or gynecologist visits for men. The theory is that this keeps the cost of individual plans high.

Unfortunately, the argument doesn’t stand up to any scrutiny. Even worse, it flies in the face of the core beliefs of many who espouse it. My question for those who hold this view is a simple one: do you believe in competition? If the answer to that question is “yes,” then there’s absolutely no foundation to hold the above viewpoint.

First, life is full of countless examples of programs and services that bundle their packages. For example, take cable TV. You may not watch ESPN, but you’re forced to pay for it all the same. Almost no one watches every available network in those packages, but every subscriber foots the bill. Some would counter this example by saying that health insurance is a vital need while cable TV is an optional luxury. However, cable TV is actually a worse case than health insurance. Why? The cable TV provider had to pay, up front, for nearly all of the networks they’re offering consumers. The same isn’t true for health insurance providers. They only pay for services rendered.

Think about 10 fictional insurance companies all offering identical insurance plans. Each company, the market tells us, wants to get the lion’s share of customers. It’s in their best interest to price their products in a way that makes them money while enticing customers to choose their plans over the competition. Now let’s consider the plans. For the sake of argument, let’s say that 50% of everything covered is specific to one sex. Men won’t be getting very many mammograms, and women won’t be getting vasectomies. The insurance companies are, purportedly, charging customers for services that will never be utilized by half their customer base. That’s the argument. All 10 are making money charging women for the cost of Cialis and men for the cost of maternity care.

If you believe in competition, then doesn’t it follow that, out of the 10 insurance companies we’ve invented, one of them would look at the bottom line, realize that they’re making money on services that never happen and respond by lowering their price accordingly? This fictional insurance company could offer the very same policy as the rest and have it cost them no more than it costs the other nine. Lowering their rates will not make them unprofitable because they’re not paying for these impossible-to-provide services.

Do such people really believe that multibillion-dollar corporations are incapable of recognizing this simple accounting? Competition, if it’s everything they believe it to be, dictates that this is exactly the inevitable outcome of such plans. The only way this wouldn’t work is if all 10 companies are in collusion to keep their prices artificially high, and no one is suggesting that’s part of the problem.

The only way this argument makes any sense is if the providers were actually paying a cost for service that can’t possibly ever be provided. The idea that they’re charging us more simply because a plan is all-inclusive doesn’t add up, at least if the market works the way we’re told it’s supposed to work. I, for one, think that’s exactly what’s going to happen over time. Do you believe in competition?